Kamil Galeev Profile picture
Jun 15, 2022 45 tweets 17 min read Read on X
What's happening with Russian economy?

Dynamics of Russian economy have been quite counterintuitive. Many, including myself expected the quick crash of the Russian currency. Indeed, usd/rub exchange rate initially skyrocketed. But since March 10 ruble started growing quickly🧵 Image
One could assume that the ruble price somehow correlated with Russian military successes. Indeed, Russians were advancing quickly. And still, less quickly than almost everyone had expected. Plus subsequent Russian retreat from the north in early April didn't stop the ruble rise
Much better and more obvious explanation would be: the price of the ruble dependent primarily on the trade balance rather than with what was happening on the Ukrainian battlefields. Strong ruble is a result of the trade surplus. And the Russian trade surplus skyrocketed in 2022 Image
Trade balance depends on exports and imports. Now what does Russia export? That's the figures of 2017 but that's good enough to see the structure of its exports. It's overwhelmingly raw materials. Fossil fuels, ore, metals, mineral fertilisers. Very little machinery or equipment Image
Now let's have a look on Russian import structure. It's nearly reverse. Machinery, equipment, components. It's not only the consumption products but also pretty much everything that is necessary to keep the Russian industry going from the machine tools to the cassette bearings Image
To illustrate my thesis, I'll give you some examples from Russian civilian machinery, military machinery and transport. NB this is not a *proof*. That's an illustration. Let's start with civilian machinery. See an interview with the trade union leader of the Avtovaz car producer
Now let's do Russian military industry. That's a vacancy description of a construction bureau designing missiles. They are looking for a technician who would be able to write soft for machines operating on Sinumerik 840D (Siemens) & Heidenhahn software

ekaterinburg.jobfilter.ru/vacancy/893555… Image
The massive use of Western, specifically German machines and software in the Russian military industry, including missiles and rockets isn't secret. It's openly shown on the Russian TV. See this Россия 1 broadcast from Kalinin plant on 3:01

"Heidenhahn"

Image
FYI: this Heidenhahn using Kalinin plant in Yekaterinburg is a produce of the Russian air defence systems, including the С-300

There's a massive evidence that most of software used on Russian programmable machines in the military industry is either

Siemens
Heidenhahn Image
Discussions of the Russian military capacities miss one crucial element: it's total dependency upon the technological import. And vice versa, discussions on the EU-Russia relations miss the economic dependency of so many European producers upon the technological export to Russia Image
Strange behaviour of Germany during the war in Ukraine might make more sense if we consider that German and Russian economies are surprisingly compatible ImageImage
Indeed, German economy may have been a major benefactor of Putin's militarism

1. Putin builds the army
2. Pumps cash into the military industrial complex
3. Massive purchases of German machines, tools, components

bruegel.org/2022/03/the-de… ImageImage
It was the Germany that was the main provider of machine tools for the Russian industry and specifically for Putin's rearmament program

(See a report of Swedish Defence Research Agency. Tomas Malmlöf. The Russian machine tool industry
Prospects for a turnaround? February 2019) Image
German industrial producers lobbied the government for rapprochement with Russia. Consider Christian Thönes of DMG MORI, 2015

"We are very effectively working on building relations with Russian politicians and try to influence on the German politicians"

informdom.com/uploads/metal/… Image
Christian Thones who talked on lobbying the German politicians ("to the extent it is possible") in 2015, after Crimea, when the war in Ukraine was already going, is now the Chairman of the Executive Board of the DMG MORI

en.dmgmori-ag.com/company/execut… Image
In this 2020 article DMG MORI was described as *the* main producer of the machine tools for the Russian military industry before the rise of Russian state-controlled STAN company. I think this is an exaggeration. Still, that's a thing to consider

realnoevremya.ru/articles/18694… Image
While Germany was the major supplier of machine tools and equipment for the Putin's military industrial complex, France was also quite important as a supplier of armaments and components

See the Investigate Europe material
investigate-europe.eu/en/2022/eu-sta… Image
Now let's do transport. Russia is not the Upper Volta with nukes. It's the Brazil with railways. [=absolutely reliant on railways]. Railways are the main means of:

1. Cargo
2. Long distance passenger
3. To the lesser extent, daily commuting within large urban agglomerations Image
New Russian cargo trains use cassette bearing. In 2022 there were only three producers in Russia:

Тимкен ОВК (joint venture with the American Timken)
ЕПК-Бренко (joint venture with the subsidiary of the American Amsted Rail)
ООО СКФ (Swedish SKF)

They all stopped production Image
I gave three brief illustrations of Russian total dependency upon technological import in:

1. Civilian machinery
2. Military machinery
3. Transport

After the start of the war the technological import stopped nearly completely, even in industries not touched by sanctions Image
After February 26 two things happened:

1. Sudden and almost complete obliteration of import
2. Actual increase in the export value (partially due to the rising prices on raw materials)

As a result, Russian trade surplus skyrocketed (see the graph) and the ruble grew stronger Image
Paradoxically enough, the growth of raw materials export in combination with obliteration of technological import boosted the trade surplus. But this situation is simply unsustainable. Russia can't do without the technological import. It can't even sustain its fossil fuel export Image
This is a very illustrative case. Nordstream gas supply decreased by 40%. Why? Siemens was supposed to repair a gas compressor and deliver it back to Russia. But due to the Canadian sanctions it can't, so the supply decreased dramatically. Now they're working on a solution Image
Now let's sum up. Why has ruble grown stronger?

1. You can't judge the Russian economic dynamics on the monetary indicators
2. Trade surplus skyrocketed due to the export booming and import reduced dramatically
3. This situation is unsustainable. Russia can't do without import
How is Russia dependent upon import?

1. Civilian manufacturing
2. Military manufacturing
3. Transport

Are all critically dependent upon imported tools & components, although the main chokepoints vary. Russian UAVs are component-dependent rather than tool dependent for example Image
Why is Germany supporting Russia?

Because their economies are so compatible. Putin's militarism creates demand on German precision manufacturing tools & components. Thus German industrialists try to influence German politicians to be pro-Russian "to the extent it is possible" Image
Why is France advocating for peace?

Because it helped to keep Putin's military machine going after Crimea. After the 2014 it became much harder for the Russian military to get components for their industry. Fortunately, the French obliged and issued all the necessary licenses Image
Why China can't compensate for the loss of European suppliers?

Because Russian military producers didn't want it and the state didn't allow it. On public Putin conflicted with Europe and befriended China. In practice he didn't allow to switch to the Chinese technological import
Theoretically Russian state imposed heavy import substitution requirements for the tools for the military industry. In practice though the law is used selectively. You won't be *really* jailed for supplying a German tool pretending it's Russian. But you will be jailed for Chinese Image
According to the law, supplying a foreign-produced tool as Russian to meet the import-substitution requirement is fraud. But Russia has a rule *by law*, not *of law*. The law is used selectively. If you supply German stuff, it won't be applied. Chinese though? To the jail you go Image
Hypothesis:

Friendship with China is a political project. It's quite possible that the Russian political leadership and the upper bureaucracy don't *really* trust the Chinese machines, tools and components as much as the Western
National divergence

Russian economy is falling, but it's falling unevenly. Consider a visualisation of the unemployment prognoses by a Russian state think tank ЦСР. There is a negative correlation between the economic complexity and the prognoses of unemployment increase Image
Consider these two clusters of losers. Volga cluster (Tatarstan, Samara, Ulyanovsk) and Kaluga. What unites them? Complex non-military machinery production. This sector is obliterated. Everyone who specialised on complex non-military manufacturing is destroyed by the war Image
Let's compare Kaluga (red) with nearby (Tula) yellow. They are both heavily industralized but Kaluga is obliterated and Tula is doing okayish. Why? Tula is a cluster of military industry, while Kaluga made its regional economic miracle, becoming a major car production cluster Image
Who's doing okayish macro economically? The agrarian south - huge yellow area to the south of Moscow. They didn't suffer that much. Moreover, according to the info I can't prove some regional elites of Southwest regions especially in Rostov are the major benefactors of the war Image
Look at this map again. It doesn't only reflect the current macroeconomic situation in Russia. It's also reflecting a very long and fundamental trend - Russia is shrinking southwestward, with the demographic and economic center gradually shifting in direction of Krasnodar Image
Now who's doing the best unemployment-wise? Look at the green. Those are poor and underdeveloped ethnic regions. Caucasus, Tuva, Astrakhan. That's Putin's cannon fodder

Much of the local youth will be recycled in Ukraine and those who don't will at least be employed in the army Image
That's a powerful signal for the Russian regions. Your specialisation determines your fate

You serve as the cannon fodder or produce armament -> You survive

You build a complex civilian manufacturing, especially with FDI help -> You get obliterated

Lesson for the future Image
It's not only about Russia going the North Korea scenario right now. It's also about the signal Russian business, officials and let's be honest the people are getting. Which is:

The best way to survive is to serve the military machine of the state. Self-reliance is suicidal Image
Should Russian empire survive, its imperial ethos will be very much reinforced. On regional level, on company level, on personal level those who serve the war are doing the best

There is no salvation beyond the state and its military machine

That's what Russians gonna learn Image
Indeed, this is exactly the reason why Russian imperialism and militarism exists in the first place

Because those who serve the war machine are being systematically rewarded and those who pursue other strategies are systematically selected out

They'll be selected out again Image
Should Russian empire survive this crisis it will become more aggressive and militaristic, no matter who rules in Moscow. People, companies, regions will once again learn that only within the state you can find salvation and that will define their future strategies

It should not Image
Wess Mitchell pretty openly advocated for redirecting Russian attention eastward, towards China nationalinterest.org/feature/strate…

That's a delusion. Russia is shrinking and its shrinking southwestward, to the sunbelt directly bordering Ukraine. It's shrinking *away* from China Image
Indeed, Putin's decision to invade which many perceived as "madness" may look less mad if we consider that Russian demographic and economic centres are objectively shrinking southwestward, towards Krasnodar. In this context, decision to expand southwest kinda makes sense Image
Here I gave only few preliminary considerations regarding the Russian regional dynamics based on one single indicator - unemployment prognoses by a Russian gov think tank ЦСР. I'll give more details and sources in my next thread on the National Divorce. End of 🧵

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More from @kamilkazani

Sep 17
Wagner march was incredible, unprecedented to the extent most foreigners simply do not understand. Like, yes, Russia had its military coups in the 18th c. But those were the palace coups, all done by the Guards. Purely praetorian business with zero participation of the army.
Yes, there was a Kornilov affair in 1917, but that happened after the coup in capital. In March they overthrew the Tsar, then there was infighting in the capital, including a Bolshevik revolt in July, and only in September part of the army marches to St Petersburg.

Half a year after the coup. Not the same thing
I think the last time anything like that happened was in 1698, when the Musketeers marched on Moscow from the Western border. And then, next time, only in 2023.

(Army leaves the border/battlefield and marches on the capital without a previous praetorian coup in the capital)
Read 17 tweets
Sep 14
As a person from a post-Soviet country, I could not but find the institutions of People’s Republic of China oddly familiar. For every major institution of the Communist Russia, I could find a direct equivalent in Communist China.

With one major exception:

China had no KGB
For a post-Soviet person, that was a shocking realisation. For us, a gigantic, centralised, all-permeating and all powerful state security system appears to be almost a natural phenomenon. The earth. The sky. Force of gravity. KGB

All basic properties of reality we live in Image
It was hard to come up with any explanation for why the PRC that evolved in a close cooperation with the USSR, that used to be its client state, that emulated its major institutions, failed to copy this seemingly prerequisite (?) institution of state power

Unexplainable Image
Read 7 tweets
Aug 30
Soviet Union was making a lot of weaponry.

No, it was making A LOT of it.

Soviet output of armaments was absolutely gargantuan, massive, unbeatable. “Extraordinary by any standard” , it was impossible for any other country to compete with. Image
From 1975 to 1988, the Soviets produced four times as many ICBMs and SLBMs, twice as many nuclear submarines, five times as many bombers, six times as many SAMs, three times as many tanks and six times as many artillery pieces as the United States.

Impossible to compete with. Image
Which raises a question:

How could the USSR produce so much?

It is not only that the USSR invested every dime into the military production. It is also that the Soviet industry was designed for the very large volumes of output, and worked the best under these very large volumesImage
Read 5 tweets
Aug 24
We are releasing our investigation on Roscosmos, covering a nearly exhaustive sample of Russian ICBM producing plants. We have investigated both primary ICBM/SLBM producers in Russia, a major producer of launchers, manufacturers of parts and components.

Image
We have five OSINT materials, one per each plant. To access our materials, you can either:

a) Click on a respective plant in the diagram
b) Choose it from the list below it

Follow the link: rhodus.com/roscosmos
Image
Each material includes an eclectic collection of sources, ranging from the TV propaganda to public tenders, and from the HR listings to academic dissertations. Combined altogether, they provide a holistic picture of Russian ICBM production base that no single type of source can. Image
Read 20 tweets
Aug 8
Two observations. In the recent years,

1. Silicon Valley has been turning red
2. MAGA discourse has been increasingly dominated by a few tech moguls

Now the thing with moguls is they are extreme outliers, who do not understand they are outliers.
Overall, you can expect tech moguls to have much, much higher level of reasoning abilities compared to the political/administrative class. But this comes at a cost. Their capacities for understanding the Other (masses count as the “Other”) are much poorer.
E.g. Putin is much, much less of an outlier in terms of intelligence compared to Thiel. He is much more average. At the same time, I am positively convinced that Putin understands the masses and works with masses much better.
Read 12 tweets
Aug 3
One problem with that is that too much of the supply chain for drone production is located in China. The thing with drones is that they grew out of toys industry. Cheap plastic & electronic crap that all of a sudden got military significance

America forgot how to produce cheap
Image
That is also the major problem I have with "China supports Russia" argument. China could wreck Ukraine easily, simply obstructing & delaying the drone/drone components shipments. That would be an instant military collapse for Ukraine.
Both Russian and Ukrainian drone industries are totally dependent upon the continuous shipments from China. To a very significant degree, their "production" is assembly from the Chinese components which are non alternative and cannot be substituted with anything else (as cheap).
Read 4 tweets

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